Livestock Revenue Insurance

✍ Scribed by Chad E. Hart; Bruce A. Babcock; Dermot J. Hayes

• Publisher: John Wiley and Sons
• Year: 2001
• Tongue: English
• Weight: 227 KB
• Volume: 21
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.1603

✦ Synopsis

Abstract

This study outlines several possible structures for livestock revenue insurance. The policies take the form of an exotic option, an Asian basket option. The actuarially fair premiums for these policies are equal to the prices of the options they represent. Because of the complexity of pricing Asian basket options, we combined two techniques for pricing options to reach the actuarially fair premiums. Projected premiums, producer welfare, and program efficiency are evaluated for the insurance products and existing market tools. Using efficiency ratios and certainty equivalent returns, we compare the insurance policies to strategies involving existing futures and options. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:553–580, 2001